Was It Worth It? Looking Back on a Decade of Income Tax Cuts

Except for the relative handful of households whose state income taxes went up with passage of the “millionaires” tax” last year, New Jerseyans today are paying a lower state income tax than they would have in 1993 on the same income. That is because the state income tax was reduced in three stages from 1994 to 1996. New Jersey is one of more than 40 states that cut income taxes, and other taxes, during an economic boom-time when revenues were rising beyond anyone’s expectations.

In New Jersey, those tax cuts have now been in effect for a full decade. And it is time to ask an important question: was it worth it?

To help answer this question, New Jersey Policy Perspective analyzed the financial cost to the state of the major tax policy changes made in the past 10 years. According to this analysis, New Jersey lost about $14 billion from income tax rate cuts alone. If anything, this is a fairly conservative estimate, based in part on a 7 percent yearly growth rate of income tax revenue instead of the 30-year average of 9 percent.